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from Housing INSIGHTSPolicyResearch

“Don’t Put it Here!” Does Cause Nearby Property Values to Decline?

It’s a common scene at a community hearing: local residents lined up behind the microphone waiting to testify about a proposed affordable rental housing development. Some are voicing concerns that the development will decrease property values in their neighborhood. Their concerns are understandable – they want to protect their investment in their . On the other side, housing advocates and prospective residents argue with equal passion. They want to live in affordable homes with access to jobs, schools, and other amenities for themselves and their children. Affordable housing, they argue, will not affect the values of residents already in the community. Which side is right? This policy brief summarizes the conclusions of several reviews and critiques of the growing body of research on this topic. It also highlights some of the most recent work in this area carried out by researchers at the Furman Center of New York University and funded by the John D. and Catherine T. MacArthur Foundation.

Is There Consensus in the Research? Numerous studies have been conducted to examine the impacts of affordable housing on property values in a wide variety of circumstances. Fortunately, several researchers have surveyed the landscape, inventorying and taking a critical look at the body of work that has accumulated over the past several decades. This policy brief distills the conclusions of four of these literature surveys: two produced by civic groups and two carried out by academics and published in peer-reviewed academic journals. To “summarize the summaries” — the vast majority of studies have found that affordable housing does not depress neighboring property values, and may even raise them in some cases. Overall, the research suggests that neighbors should have little to fear from the type of attractive and modestly sized developments that constitute the bulk of newly produced affordable housing today. That said, the research shows that Courtesy of LHB, Inc.

This policy brief was produced with the support of the John D. and Catherine T. MacArthur Foundation. negative effects can occur in certain nuanced set of conclusions is emerging. effects on nearby property values in the circumstances, and suggests ways to She suggests these techniques will areas with affordable housing. protect nearby property values. allow us to learn more about the A second wave of studies from the The following are brief snapshots of circumstances under which affordable mid-1990s on evaluates the effects of the scope and findings of each literature housing developments may have nearby affordable housing development review: negative effects. on property values using multivariate statistical analysis, which explains a Jeff Leary’s 1999 literature survey How do researchers home’s price as a function of both 1for the ascertain the effect of structural characteristics (age, square Association examined 31 separate affordable housing on footage, etc.) and neighborhood studies. Seven studies documented nearby property values? characteristics ( rate, distance to positive effects of affordable housing on The ideal measure of the impact of central business district, etc.). These surrounding property values while 19 affordable housing on surrounding home studies also compare the prices of homes found no effects. Negative effects were prices would compare the actual near affordable developments and homes found in one study while three studies changes in property values to the farther away but, unlike previous research, were inconclusive. changes that would have occurred in the control for the influence of structural and absence of the affordable development. neighborhood variables. Most of these The North Carolina Coalition, a Unfortunately, it is impossible to measure studies also show that affordable housing civic group, compiled a 2 this directly. Nguyen describes two has no effect or positive effects on nearby catalog (circa 2002) of 36 studies, most “waves” of housing studies that have property values. But, as detailed below, dating from the mid-1990s to the early taken different approaches to addressing they also reveal circumstances in which 2000s. The vast majority found no this issue. The first wave of studies, negative effects are possible. impact on surrounding property values. conducted in the early 1990s, used a These research methods are not Several found positive effects and only “matching” methodology that compares without their problems. Some problems one found possible negative effects. the performance of two otherwise are definitional — most importantly, what comparable neighborhoods — one with constitutes a neighborhood, and how George Galster, a professor of affordable housing and one without. All close is “nearby?” For example, a 1998 urban affairs at Wayne State 3 of the studies using this methodology study by the Innovative Housing Institute University, describes in his 2002 literature found either no difference in property of homes in Montgomery , review an emerging consensus among values between the two areas or positive Maryland defined housing within 500 feet researchers that of various types does not have negative effects — and sometimes has positive effects — on property values, particularly Why Do Property Values Matter? in higher value neighborhoods. However, Galster also notes that affordable housing Generally, rising property values indicate positive trends for a neighborhood. They signal can have a negative effect on property that a neighborhood has become a desirable place to live and to locate a business, and values when highly concentrated, influence developers’ decisions to make long-term investments in its future. For individual particularly when located in vulnerable neighborhoods that have high poverty homeowners, who depend on home equity to provide resources for retirement or finance rates and low home values. a child’s education, home values are extremely important. Property values also may be a proxy for factors that can be hard to measure and often reflect access to Mai Thi Nguyen of good schools, jobs, shops, , and other amenities. State University reviewed 17 4 In distressed neighborhoods, rising property values are a sign of hope that the stage studies produced over several decades. According to her 2005 analysis, 11 is being set for economic renewal. Measurable rises in home prices and rents as well as studies found that affordable housing a general increase in real estate activity represent important benchmarks for successful had either a neutral or positive effect on neighborhood revitalization. In this sense, affordable housing that stabilizes or increases property values, five found mixed effects, nearby property values may also contribute more broadly to stronger neighborhoods. and one documented negative effects. Generally, price increases are a positive development, but when rising rapidly, teachers, However, Nguyen argues that this tally oversimplifies results, and that as data nurses, firefighters, and other working families can be priced out of their neighborhoods. sets and analytical techniques have Certain strategies may need to be put in place to ensure the long-term affordability of a become more sophisticated, a more portion of the housing stock. Insights from Housing Policy Research Housing Policy Insights from

2 Much of the research suggests that the type of affordable housing matters less than the quality Do impacts differ by neighborhood type? of the properties’ design, Some evidence suggests that affordable management, and maintenance. housing is more likely to have either no impact or a positive impact on surrounding home prices when located in strong of subsidized housing as “near,” meaning that the quality of management influenced neighborhoods — that is, higher value, lower a home 501 feet away from subsidized whether or not a development had negative poverty neighborhoods. For example, in housing would not be considered near. effects on nearby property values. Similarly, some of his own research, Galster studied Another problem, noted by Galster in his a 1993 study by Paul Cummings and John scattered-site units in 2001 literature review, is that many studies are Landis at Berkeley, found no negative impact in Denver and the residences of families susceptible to the criticism that they fail to on property values of affordable assisted through housing indicate whether home prices were rising or homeownership condo developments in San vouchers in the late 1990s in Baltimore. He falling before the analyses were conducted. Francisco and San Mateo County in found that the impact on nearby property It is possible that these studies may just be California. The authors attribute this finding values tended to be positive when these measuring pre-existing trends in home to the care taken by the developers to deliver subsidized households were located in prices rather than the effects of wealthier neighborhoods that affordable housing — an issue were generally appreciating in Galster seeks to overcome in his value. By contrast, subsidized own research. Finally, since households and developments most of the studies were located in more vulnerable conducted at the local level, neighborhoods where lower findings in one neighborhood priced homes were already may or may not apply elsewhere. depreciating were more likely to result in continued negative Does the type of effects on property values. affordable housing At the same time, several matter? researchers have found Just as there is no single evidence of positive effects on definition of affordable housing, property values in vulnerable the types of affordable housing neighborhoods related to the examined in the property values Courtesy of Trinity Housing rehabilitation of abandoned or research reflect great diversity. Studies designs that suited the scale and character distressed properties as affordable have covered the impact of public housing of the surrounding neighborhood. housing. Researcher Ingrid Ellen and her in Portland, Oregon and Memphis, In some circumstances, however, the colleagues at NYU carried out one of the Tennessee; non-profit housing developments type of housing does appear to matter. In most recent, detailed examinations of the in New York and Minneapolis; Low Income a series of studies conducted by Ingrid impacts on neighboring property values of Housing Tax Credit projects in Cleveland Ellen and her colleagues at the Furman -supported rehabilitation of rental and Seattle; affordable homeownership Center of NYU on the impact of affordable housing. The redevelopment projects programs in San Mateo, California and housing on property values in New York included in the study were undertaken by ; and Section 8 voucher City, developments financed through the both nonprofit and for-profit developers, programs in Baltimore — just to name a few. Low Income Housing Tax Credit (which and researchers used data on New York Much of the research suggests that the serve a low- to moderate-income City from the 1980s through 1990s. The type of affordable housing matters less than population) were somewhat more likely results, published in 2006, found the quality of the properties’ design, than developments financed through other significant, positive spillover effects on management, and maintenance. Nguyen federal programs to increase surrounding neighboring property values stemming cites a 1996 study by Edward Goetz and his home prices. By contrast, they found that from this rehabilitation, although these colleagues at the University of Minnesota in public housing (which serves the lowest positive effects were slightly lower in the which a comparison of subsidized units in income population) was somewhat more more distressed and disadvantaged areas Minneapolis — some public housing, some likely to produce negative effects than where nonprofits tended to work, privately owned subsidized units and some developments funded through other particularly for smaller-scale projects. developed by a local nonprofit — found that federal programs. See PROPERTY VALUES page 5

3 A Conversation with Ingrid Ellen

In 2005, the John D. and Catherine T. MacArthur Foundation provided support to Ingrid Ellen, Co-Director of the Furman Center and Associate Professor of and at the Wagner School of New York University (NYU), along with her colleagues Ioan Voicu and Amy Ellen Schwartz, also of NYU, and Michael Schill of UCLA’s School of Law, to continue their research on the impact of ’s investments in affordable housing. Center for Housing Policy staff spoke with Professor Ellen about the team’s research.

What would you say was innovative longer than those of for-profit housing. Furthermore, the about the MacArthur-funded work? magnitude of the benefits does not differ between sectors for New York City has built 70,000 units [of affordable housing] large projects, although in the case of smaller projects, the and renovated another 120,000 during our study period — far for-profit developers generated greater benefits. more than any other city. Although many of these are A typical critique of your work is that concentrated in low-income areas, they are, in fact, located it’s for New York City – so the findings all over the city. Our data were quite extensive, including 30 have limited application elsewhere. years of data on housing prices. That gave us the statistical How do you respond? power of a research design that had not been used before. Most of the existing research uses cross-sectional data We look at units located in all five boroughs, including comparing an area with subsidized housing to an area Staten Island, Queens, for example. So we were able to look without subsidized housing. This is limited because you are at the impacts in low-density neighborhoods with single- comparing different neighborhoods with many different family homes as well as high-density areas in Manhattan. factors at work. There [are] a few [other] longitudinal studies Our studies cover a diversity of neighborhoods. We think but usually just for a few selected developments, a few our results should provide reassurance to community neighborhoods, or one program. residents about the neighborhood effects of federally So we had a unique opportunity. [Our] study was more subsidized housing. precise, and looked at differences in impacts [of] rehab units vs. new , one area vs. another, owner-occupied What would you say is the “bottom vs. renter-occupied and non-profit developer vs. for-profit line” for practitioners on the impacts of developer, as well as several different housing programs, affordable housing on surrounding federal vs. city subsidized. We were able to look at all these property values? comparisons over a period of 15 years. We can say generally that there is very little evidence – no evidence – of the significant reductions in property values What does your most recent research that communities fear. What almost all the research is show? showing is that there is a range from no impact to a positive In one study, we compared sales prices of New York City impact. homes located near federally subsidized rental housing to sales prices of similar homes located in the same Aren’t there some exceptions? Doesn’t neighborhood, but farther from subsidized housing. We it also depend upon the concentration found that on average, subsidized housing is associated with of units and attractive design, as Gal- ster and others have shown?

a small increase in neighboring property values. Benefits are Insights from Housing Policy Research larger for average-sized or larger developments in more Yes, you can’t completely generalize. For example, it’s hard distressed neighborhoods. to compare a greenfields development with an The other study looked at how city-supported rental development. Often in existing communities, the [affordable] housing rehabilitation projects undertaken by nonprofit and housing replaces abandoned or vacant lots or they for-profit developers affected nearby property values and are renovating buildings, which brings stability to the whether these effects differed between the two sectors. We neighborhood. Overall, though, the evidence clearly fails to found that rehabilitation of rental housing by both for-profit support the notion that subsidized rental housing, as a and nonprofit organizations raises surrounding property general matter, will depress neighborhood property values values. The “spillover” benefits of nonprofit housing last or otherwise undermine communities.

4 PROPERTY VALUES from page 3 affordable housing is relatively dispersed, but become negative once a critical mass of assisted housing sites or Do impacts vary with the size of the units are located in a neighborhood. The effects are most affordable housing development or acute in lower value neighborhoods, he maintains, but even number of households? in higher value neighborhoods, the concentration of sites or Yes. Several researchers found that larger, more concentrated units can lead to negative effects on property values. affordable housing developments were more likely than smaller In distressed areas, however, larger-scale affordable projects developments to have a negative impact on nearby property may in fact be desirable when they result in an upgrading of values. For example, a 1993 study by Robert Lyons and Scott the housing stock at a scale sufficient to change the Loveridge of subsidized housing in Ramsey County, Minnesota, neighborhood trajectory. In the same 2007 analysis noted found substantial reductions in property values when the above that looked at the large-scale rehabilitation of dilapidated housing was clustered, as opposed to negligible effects when homes to create affordable housing opportunities in New York subsidized units were scattered throughout a neighborhood. City, Ingrid Ellen and colleagues found that this activity led to In a 2007 study, Ingrid Ellen and her colleagues found that significant increases in neighboring property values. By federally subsidized rental housing in New York City did not contrast, a 2001 study by Jean Cummings and colleagues generally lead to reductions in nearby property values. They looked at smaller-scale efforts to boost neighborhood did, however, suggest that larger more concentrated homeownership in Philadelphia and found no impact on developments may be an exception, decreasing nearby neighboring property values. These studies suggest that property values within the first three years of completion. deliberate attempts to revitalize a neighborhood by rehabilitating Galster, in his literature review, suggests there is a or otherwise upgrading the housing stock through affordable widespread pattern of threshold effects whereby the effects housing activity may have positive impacts, if done at sufficient on surrounding property values are neutral or positive when scale and as part of a broader community revitalization strategy.

Studies Cited in this Brief

The four literature reviews that are the The MacArthur-funded research studies Goetz, E.G., Lam, H.K. & Heitlinger, basis for this policy brief: by Ingrid Ellen et al.: A. (1996). There goes the neighborhood? The impact of subsidized multi-family housing Ellen, I.G. & Voicu, I. (2006). Nonprofit housing Galster, G.C. (2002). A review of existing on urban neighborhoods. Minneapolis-St. and neighborhood spillovers. New York: research on the effects of federally assisted Paul: University of Minnesota, Center for Furman Center for Real Estate & Urban Policy. housing programs on neighboring residential Urban and Regional Affairs. property values. Washington, DC: National Available at: http://furmancenter.org/files/ Nonprofitpaper_090105_000.pdf. Association of Realtors. Available at: Innovative Housing Institute. (1998). The www.realtor.org/ncrer.nsf/files/galsterreport2.pdf/ next door. Baltimore, MD: Author. Ellen, I.G., Schwartz, A.E., Voicu, I., & Schill, $FILE/galsterreport2.pdf. Available at: www.inhousing.org/housenex.htm. M.E. (2007). Does federally subsidized rental housing depress neighborhood property Leary, J. (1999). Affordable housing: The Lyons, R.F. & Loveridge, S. (1993). An values? New York: Furman Center for Real impact on property values: A survey of the hedonic estimation of the effect of federally Estate & Urban Policy. Available at: literature. Sacramento, CA: California subsidized housing on nearby residential http://furmancenter.org/files/Nonprofitpaper_ Redevelopment Association. property values. Staff Paper P93-6, 090105_000.pdf. Minneapolis-St. Paul: University of Minnesota, Nguyen, M.T. (2005). “Does affordable Department of Agriculture and Applied Individual studies cited: housing detrimentally affect property values? Economics. A review of the literature.” Journal of Planning Cummings, P. & Landis, J. (1993). Literature 20(1): 15-26. Relationships between affordable housing Santiago, A.M., Galster, G.C., & Tatian, P. development and neighboring property values. (2001). “Assessing the property value impacts North Carolina Coalition (circa 2002). Working Paper 599, Berkeley, CA: Institute of of the dispersed housing subsidy program in Critical Information on the Issue of Urban and Regional Development. Denver.” Journal of and Affordable Housing. Available at: Management 20(1). http://www.nchousing.org/messaging- Cummings, J.L., DiPasquale, D. & Kahn, M. strategy/nchc-housing-comm-manual/ (2001). Affordable Homeownership: Measuring sec2_affordable-housing-pdf.pdf the benefits of homeownership for low- and moderate-income households in the city of Philadelphia. Philadelphia, PA: City Research. Insights from Housing Policy Research Housing Policy Insights from

5 Policy briefs in this series are prepared by AccentuatethePositive,Minimizethe the Center for Housing Policy for the John Negative — Lessons for Practitioners D. and Catherine T. MacArthur Foundation. The Foundation's grantmaking is intended Many Americans, even those who support the development of to raise the priority and profile of affordable housing, may nonetheless object when such a affordable housing policy by investing in the creation of new knowledge about the development is proposed in their own neighborhood. Fears about supply and demand for rental housing and property values are often — although not always — misplaced. affordable housing's connection to other Taken together, the body of research on this subject suggests issues. This series presents concrete ways to minimize both the negative effects and key findings from affordable housing neighborhood opposition to such developments: research supported by the Foundation. • Design — Affordable housing that is attractively designed and blends with the surrounding neighborhood may be more likely to have no effect or even a positive effect on nearby property values. An attractive design also may be helpful in allaying community concerns about the aesthetics of a proposed development.

• Management — Not surprisingly, poorly maintained housing — whether As the research affiliate of the National privately owned or subsidized — has been shown to depress nearby property values. Housing Conference (NHC), the Center Affordable housing that is well-managed and well-maintained is more likely to have a for Housing Policy specializes in neutral or even positive effect on surrounding properties. developing solutions through research. In partnership with NHC and its • Revitalization — Rehabilitation of distressed properties for affordable members, the Center works to broaden housing has proven beneficial to neighboring home values. Neighbors are likely to view understanding of the nation’s housing quality, affordable housing as preferable to vacant lots or dilapidated buildings. challenges and to examine the impact • Strong Neighborhoods — As long as it is not overly concentrated, of policies and programs developed to locating affordable housing developments in strong neighborhoods with high home address these needs. Combining research values and low poverty rates is unlikely to have adverse effects on nearby property and practical, real-world expertise, the values. These findings provide support for the emerging trend toward mixed-income Center helps to develop effective policy housing and communities. solutions at the national, state and local levels that increase the availability of • Concentration — Research suggests that distressed areas may benefit from new affordable housing developments that are large enough to overcome surrounding affordable homes. blight. In other neighborhoods, large concentrations of affordable units are best avoided in favor of more moderately sized developments that may limit the negative effects associated with concentrations of poverty. What exactly constitutes a large concentration of affordable housing? Unfortunately the answer so far seems to be “it For more information, contact us at: depends.” This, researchers agree, is an important outstanding question. Center for Housing Policy and National Housing Conference Clearly, more work needs to be done. However, a greater understanding and appreciation of the evidence to-date could prove helpful in increasing community 1801 K Street, NW, Suite M-100 support for affordable homes. Washington, DC 20006-1301 Phone: (202) 466-2121 Fax: (202) 466-2122 www.nhc.org

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